Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow Investments: An Introduction

Foreign investments

Foreign assets are comprised of the same asset classes as local assets. This is obvious because assets classes are the same worldwide. The difference between the asset classes in smaller countries and those in the larger economies is that the variety of assets in the larger economies is vast; in fact so vast that small country fund managers tend, in their foreign asset class selection, to rely on the expertise of foreign fund managers or invest in these markets via foreign investment vehicles.

There are many considerations in foreign investment selection, the most significant of which are currency risk and the diversification opportunities: individual investors would be wise to spread their foreign investments among a number of currencies in order to reduce risk

Asset classes

We have briefly covered all the investment assets that are available to investors. A summary is provided in Figure 14 (showing that international asset groupings are the same as local assets groupings), and a different perspective is presented in Figure 15. In the institutional investment industry, fund managers refer to "asset classes". They are as shown in Table 4.

Financial assets:

Notes:

Shares

Held directly (with some exceptions):

- Ordinary shares

- Preference shares

Bonds

Held directly (with some exceptions):

- Government bonds

- State-owned enterprise (SOE) bonds

- Corporate bonds

- SPV bonds

- Foreign bonds

Money market

Held directly (with some exceptions):

- Treasury bills

- Commercial paper

- NCDs & NNCDs

Hedge funds & private equity funds

Held directly

Real assets:

Notes:

Property

Held directly:

- Commercial buildings Held indirectly:

- Mainly PUTs

Commodities

Held directly:

- Mainly precious metals Held indirectly:

- Commodity ETFs

Table 4: Asset classes of institutional investors

As indicated earlier, the asset classes are held in different proportions, and generally in the order indicated in Table 4. Note that foreign assets are a proportion of the local asset classes, and generally apply to shares and bonds.

Note the addition of hedge funds and private equity funds in Table 4, which are regarded by some as a separate asset class, and the absence of "other real assets", i.e. art, rare stamps, antique furniture, etc (there are exceptions to the rule).

What is the "institutional investment industry" and who are the "fund managers"? The terms are synonymous, and refer to companies (they are not financial intermediaries, but are robustly-regulated) that manage funds on behalf of the large investing institutions, which are the investment vehicles. A reminder (see also Figure 15):

- Contractual intermediaries (CIs):

- Retirement funds.

- Life insurers (note: only endowment policies & annuities are investments).

- Collective investment schemes (CISs):

- Securities unit trusts (SUTs).

- Property unit trusts (PUTs).

- Exchange traded funds (ETFs).

- Alternative investments (Als)

- Hedge funds (HFs).

- Private equity funds (PEF s).

investments

Figure 14: investments

investments in broad groupings

Figure 15: investments in broad groupings

As indicated, the "investment vehicles" essentially hold assets (the ultimate investments) on behalf of the holders of their liabilities, which we have termed PIs (indirect investments).

For individual investors, the asset classes are the same as above with the exception of hedge funds and private equity funds, and the addition of "other real assets" (see Table 5). The asset classes in Table 5 are not in order of funds allocation. It will be evident that individuals' holdings of the asset classes change over the life-cycle (which is discussed in more detail later).

Financial assets:

Notes:

Held in directly via CIs and CISs:

- Ordinary shares

Shares

- Preference shares

Held directly (in the case of HNWI1)

- Ordinary shares

Held indirectly via CIs and CISs:

- Government bonds

- State-owned enterprise (SOE) bonds

Bonds

- Corporate bonds

- SPV bonds

- Foreign bonds

Held directly:

- Government bonds (retail bonds)

Held in directly via CIs and CISs:

- Treasury bills

- Commercial paper

- NCDs & NNCDs

Held directly:

- NNCDs

Real assets:

Notes:

Held in directly via CIs and CISs:

- Mainly commercial buildings

Held directly

- Own residential property

- PUTs

Held directly:

- Precious metals (gold coins)

- Cattle (in some countries)

Held directly (by HNWI):

Other real assets

- Antique furniture

- Rare stamps and books

- Art, etc.

Table 5: Asset classes of institutional investors

The above exposition was designed to provide the reader with an introduction to the investment instruments and asset classes, not to provide the detail. It should be seen as a broad overview.

 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Mathematics
Political science
Philosophy
Psychology
Religion
Sociology
Travel